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“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Bankruptcy Exemptions
Written by Craig D. Robins, Esq.
After I wrote about some bankruptcy court decisions last month which involved some quirky and unusual facts (Two bankruptcy attorneys got into trouble over E.C.F. filings), some of my colleagues requested that I continue to discuss similarly odd and interesting cases. Fortunately, we have one that is fresh off the docket.
On April 24, 2012, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court, here in the Eastern District of New York, happened to issue a decision in just such a case, so we now have appropriate fodder for this month’s column.
The decision, which is just as interesting for what is says, as for what it does not, involves protecting a debtor’s entitlement to receive funds, trying to be creative with exemptions, and seeing how a client might suffer from attorney ineptitude for being unfamiliar with bankruptcy practice and procedure.
Perhaps most importantly, it also leaves one thinking about how far a judge can or should go to assist counsel who is clueless. In re Cho, no. 11-75595-ast, (Bankr. E.D. New York 2012).
In August 2011, Mr. and Mrs. Cho filed a typical Chapter 7 consumer bankruptcy petition here on Long Island. About a month before filing, the debtors’ car lender repossessed their Honda. Unbeknownst to the debtors at the time, a week before the filing date, the lender sold the vehicle at auction, and the sale resulted in a surplus of $5,000.
The debtor’s bankruptcy attorney, a lawyer from Queens who shall remain nameless, advised Chapter 7 Trustee Robert Pryor at the meeting of creditors, that the debtors’ vehicle had been repossessed pre-petition, resulting in a surplus, and that the debtors had received and deposited a check for the surplus post-petition.
Debtor’s Attorney Tries to Be Creative – Unsuccessfully
The trustee soon demanded that the debtors turn over the entire surplus amount. Instead of doing that, the debtors amended their Schedule of Assets to include an ownership interest in the vehicle (which they no longer owned).
They also amended their Schedule of Exemptions (which opted for New York State exemptions as opposed to the more liberal federal exemptions) to exempt the vehicle in the sum of $4,000 pursuant to C.P.L.R. § 5205(a)(8), and to also increase their cash exemption by $1,000 to cover the additional value of the surplus pursuant to C.P.L.R. § 5205(a)(9).
The trustee believed that he was nevertheless entitled to the full surplus amount, so, with the help of his able associate, Michael Farina, he brought a motion to compel the debtors to turn it over. The debtors responded, acknowledging that they no longer owned the vehicle, but argued that they were entitled to exempt the surplus as cash. The trustee responded and pointed out that the amended schedules were improperly done and therefore fatally defective.
The trustee’s observation was correct. Eastern District of New York Local Bankruptcy Rule 1009-1(iv) provides that in order for an amendment of exemptions to become effective, the debtor must first file and serve the amended exemptions on the U.S. Trustee, all creditors, and all other parties in interest, and then file proof of service with the court. Here, the debtors’ attorney both neglected to file, and neglected to serve.
One would think that the debtors’ attorney, after reading the trustee’s papers alleging this neglect, would take immediate corrective action. However, he did not. At the hearing, which was held in December 2011, Judge Trust generously gave debtors’ counsel a week to comply with the local rule requirement.
However, inexplicably, counsel then filed the amendments but neglected to serve them. This led the trustee to file supplemental objections. At a subsequent hearing, Judge Trust gave the debtors’ counsel one last opportunity to meet the procedural requirements, which he finally did. The matter was now marked for submission.
The issue before the court was whether the debtors could exempt the surplus cash under New York law, and whether the debtors could exempt the vehicle.
In his decision, the judge first pointed out that New York residents who file bankruptcy after June 21, 2011 have an option of selecting either the New York State or federal exemptions, and that the debtors here chose to claim the New York State exemptions.
Bankruptcy attorneys know that a debtor can exempt up to $5,000 of cash pursuant to the New York State cash exemption set forth in Debtor and Creditor Law sec. 283(2), provided that the debtor does not utilize the homestead exemption.
Judge Trust determined that, at the time of filing, the debtors did not own cash. Under DCL § 283(2), “cash means currency of the United States at face value, savings bonds of the United States at face value, the right to receive a refund of federal, state and local income taxes, and deposit accounts in any state or federally chartered depository institution.”
The judge, following the overwhelming majority of courts, determined that the debtors had a “pre-petition vested right to receive payment” of the surplus which did not constitute “cash.” A right to receive payment as evidenced by a check in transit is not “cash.”
In addition, since the debtors did not have an ownership interest in the vehicle on the date of filing, nor did they have a right of redemption, they could not exempt the vehicle.
However, Judge Trust indicated that the debtors could exempt $1,000 of the right to receive payment. This is because of the relatively new exemption under C.P.L.R. § 5205(a)(9) which permits debtors filing after January 21, 2011, to utilize a $1,000 wildcard exemption for any personal property, provided that the debtor does not claim a homestead exemption.
Since the car was only in one spouse’s name, and the debtors did not claim a homestead exemption, they were entitled to one, $1,000 wildcard exemption which could be applied to the surplus. The judge ordered them to turn over the balance of the surplus to the trustee.
Debtors’ Counsel Neglected to Use the Best Exemption to Protect His Clients — a Fact the Judge Did Not Point Out
Here’s why I found the decision especially interesting. First, the debtors’ counsel initially botched up amending the exemptions – not once – but twice. Judge Trust gave counsel two opportunities to correct the mistake. Counsel finally figured out what to do on the third try.
Of course, we will never know what Judge Trust was thinking, but one can’t help but wonder if his granting counsel an opportunity to remedy the defective filings was also an opportunity for counsel to reconsider the exemption scheme counsel had elected.
Had counsel opted for the much more generous $10,825 federal wildcard exemption provided in the federal exemptions by Bankruptcy Code § 522(5), he would have been able to protect 100% of the surplus. In essence, it appears that counsel chose the wrong exemption scheme to the detriment of his clients.
An Interesting Issue: How Far Can or Should a Judge Go to Educate Inept or Inexperienced Counsel?
However, a judge can and will only go so far in telling inept or inexperienced counsel what to do. Would it have been out of line for the judge to tell debtor’s counsel that counsel didn’t have a sufficient understanding of law and procedure, and was not following the best legal strategy? This is not a role that judges have. They cannot advocate for one party.
Just to be clear, we will never know if Judge Trust was aware that debtor’s counsel botched up the exemptions, but if Judge Trust was aware of this issue I would assume that he would take the position that it is not his place to point out that counsel could have protected the entire surplus if the federal exemptions were used.
Based on my experience watching cases in court over the past three decades, this seems to be the way almost all judges handle such issues – they will not tell counsel how to practice law, even if that ultimately hurts an innocent client.
Accordingly, the debtor-clients here suffered and will have to turn over many thousands of dollars that they could have kept had their attorney had a better understanding of bankruptcy law and selected the better exemption scheme. And that point is not in the decision.
Click this link to see a copy of the Cho decision in Case No. 11-75594-ast.
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About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the June 2012 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 . For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.Every so often we file a bankruptcy case that has a rather unusual asset – and unusual assets sometimes lead to unusual dispositions by the trustee.
Almost two years ago, in 2008, we filed a Chapter 7 bankruptcy petition in the Central Islip Bankruptcy Court here on Long Island that was routine in every respect – except one. The debtor had an unusual asset which the trustee thought he could sell for the benefit of creditors.
Our client, an African-American, had inherited some property 30 years ago that had been in his family for quite some time.
Forty Acres and a Mule
Apparently, the debtor’s great grandfather was a slave in Virginia and upon his emancipation around 1865, he was given some unimproved property in that state – what was then referred to as “forty acres and a mule.”
According to Wikipedia, 40 acres and a mule was a practice in the 1860’s of providing farmable land to Black former slaves who became free as Union armies occupied areas of the Confederacy.
The combination of the land, together with Army mules, was meant to provide a sound start for a family farm.
40 acres (16 hectares) was a standard lot size for rural land, being a sixteenth of a square mile.
Former Slave’s Property Handed Down to Debtor
Over the ensuing years, the great grandfather and his descendants carved up the property several times and transferred it down family lines.
When the debtor inherited some of this property about 30 years ago from his parents, it consisted of two unimproved lots, one about two acres in size, and the other about four acres. Other family members owned adjoining parcels. The trustee assumed that six acres of property had to be worth something.
However, the property was located in a very rural area in Southern Virginia consisting primarily of farms and vacant, unused land. Neither of the debtor’s parcels abutted a roadway; there were no structures on or near the land; and there was no utility service to the land. Basically, the property had very little value.
Nevertheless, the property was not exempt under any statutory authority. Since the debtor did not reside on the land, he was unable to assert the homestead exemption to protect it, and since the bankruptcy case was filed before New York’s exemption statutes changed a few months ago, the debtor could not utilize any wildcard exemption.
The debtor had hoped to keep the property for sentimental reasons, but realized that cooperating with the trustee and obtaining a discharge of his existing debts was more important.
Nevertheless, the debtor knew that there was very little demand for such lots as there were many of them, and hoped the trustee would just abandon it.
Bankruptcy Trustee Tries to Sell Former Slave’s Land
The Chapter 7 bankruptcy trustee, known in local circles for being rather aggressive about pursuing assets, would do no such thing. The trustee brought an application to retain a local Virginia real estate broker to list and sell the property.
I initially tried to persuade the trustee, who I am friendly with, to abandon the property as having no value to the bankruptcy estate. However, the trustee was somewhat adamant so I assured him that the debtor would fully cooperate with him.
The broker tried to sell the parcels for two years with no success. The trustee did not give up. Earlier this month, he fired the broker and brought an application to retain another one. That application was granted just yesterday.
The Trustee Gives Up
Today, quite unexpectedly, the trustee filed a “no-asset report” – just 24 hours after getting court approval to retain a new real estate broker.
By filing this no-asset report, otherwise known as a “Chapter 7 Trustee’s Report of No Distribution,” the trustee advised the bankruptcy court that there were no assets to be distributed and that the case should be closed as having been fully administered.
What happened in 24 hours? I haven’t spoken to the trustee yet, but my guess is that the trustee finally realized what the debtor had known all along – that the property had very little extrinsic value and that it would be very difficult to sell. Sometimes Debtors Can Keep Non-Exempt Assets in Chapter 7 Bankruptcy Cases .
Out of curiosity I called the broker who acknowledged that this property would certainly be a hard-sell.
Non-Exempt Real Estate Stays in the Family
Consequently, the debtor received his discharge (the court actually granted this over two years ago) and he was able to keep all of his assets – including the land remaining from his great grandfather’s emancipation from slavery – forty acres and a mule.
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About the Artwork: The image is a painting by renowned Atlanta Landscape and Wildlife artist Leonard M. DeFoor. He has some great work! Check out his website.
By Craig D. Robins, Esq.
Second Circuit Decision Emphasizes Forward-Looking Approach to Protecting Claim for Wrongful Termination
Bankruptcy exemptions have been receiving a great deal of attention here in New York lately because of the recent dramatic changes to our state’s exemption statutes. These changes include giving debtors the option of using either the federal or New York State exemptions.
It is therefore an ideal time to discuss a recent, interesting Second Circuit decision involving a Connecticut bankruptcy case that addresses the federal exemption for protecting entitlement to a claim for lost post-petition earnings.
Debtors Had a Claim for Wrongful Termination
In Jackson v. Novak, 593 F.3d 171 (2d Cir. 2010), the husband and wife debtors, who were a psychiatrist and a psychologist, filed a typical Chapter 7 consumer bankruptcy petition in which they sought to discharge typical consumer debt. One of the assets that they sought to exempt consisted of the proceeds of a settlement for wrongful discharge.
Prior to filing, both debtors had been employed by a health insurance company in Connecticut. The company closed the local office and terminated the debtors’ employment about six months pre-petition. Also prior to filing, the debtors asserted claims against the company for wrongful termination, alleging they were fired in retaliation for challenging the way certain health insurance claims were treated.
In October 2003, the debtors filed their Chapter 7 bankruptcy petition, listing the cause of action for wrongful termination. Thereafter, the Chapter 7 trustee pursued the claims against the former employer and reached a settlement of $130,000 about a year after the bankruptcy was filed.
The settlement was “to satisfy claims for future lost earnings.” After attorney’s fees and expenses, the net proceeds to the debtors amounted to $83,000. In essence, the settlement essentially bought out the debtor-husband’s contract, paying him an amount equal to one year’s worth of salary. The debtor had stood to earn half of this amount prior to the time the bankruptcy was filed, and the other half, after the bankruptcy was filed.
Debtors and Trustee Litigate Over Exempting Proceeds From Claim
The debtors sought to exempt the settlement proceeds by amending their schedule of exemptions, stating that under Bankruptcy Code § 522 (d)(11)(E), which is one of the federal exemption provisions, these proceeds were exempt.
This section of the federal exemptions permits a debtor to exclude from the bankruptcy estate “a payment in compensation of loss of future earnings of the debtor to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.”
The trustee objected, arguing that the proceeds were not exempt under several different theories, and the matter landed before the bankruptcy court judge who held a trial.
Bankruptcy Court Utilizes Forward-Looking Approach
The court noted that the debtor’s schedules indicated monthly income of $10,000 and monthly expenses of $14,000, a monthly shortfall of $4,000. In addition, the court also noted that debtors retained post-petition, $6,200 in cash, and a boat and trailer; they had the use of four vehicles; they lived in a $435,000 house; they owned a one-third interest in 20 acres of land in Tennessee; and both debtors were working “without any mental or physical disabilities or restrictions.”
The bankruptcy court concluded that given the language of § 522(d)(11)(E), only earnings related to the period after the filing of the bankruptcy petition could be exempted. Property of the estate, and a debtor’s exemption therein, is determined as of the bankruptcy petition date. Section 522(d)(11)(E) refers only to post-petition loss of earnings, and the debtor may not exempt that portion of the settlement proceeds that provided compensation of his pre-petition loss of earnings.
In other words, the debtor was only able to protect that compensation which he stood to earn after the petition was filed. However, the court did not stop there. The statute states that debtors can only exempt such payments “to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.”
Accordingly, the court conducted an computational analysis. Basically, since the debtors had a monthly shortfall of $4,000 a month, the court let the debtors keep that sum for the period of the settlement that covered the post-petition period. That amount was $16,550.
The debtors, who had hoped for much more, appealed to both the District Court and the Second Circuit Court of Appeals, arguing that the bankruptcy court had improperly calculated the amount. Both appellate courts affirmed the decision of the bankruptcy court.
The Second Circuit emphasized that the provisions of § 522(d)(11)(E) apply only to post-petition earnings and defined the term “future” as “looking forward from the date of the bankruptcy filing” and not from some previous point in time, as the debtors had argued.
The Court of Appeals found no error in the lower courts’ reasoning that considered such factors as the debtors’ needs, including present and anticipated expenses, their assets, present and anticipated income, training and education, and “ability to earn a living” in arriving at the $16,550 figure that represented a shortfall in their income.
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About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the March 2011 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.
How to Use the New Open-Ended Federal Exemption
Last month I wrote about some bombshell news for New York bankruptcy debtors: outgoing-Governor Paterson unexpectedly signed legislation greatly increasing the New York state law exemptions, which are the statutes debtors can use to protect assets while seeking bankruptcy relief. The new law became effective on January 22, 2011.
See the January 2011 Suffolk Lawyer article — Bankruptcy Exemptions for New York Suddenly Increased for 2011 .
Not only does the new law increase existing exemption amounts for various assets, but it also permits debtors to use the federal exemptions – something that New York debtors (and their attorneys) never had to consider in the past.
It is therefore exciting that we will now be able to protect our consumer bankruptcy clients with a set of exemption statutes that open the door to all sorts of new possibilities. The most intriguing federal exemption is the wildcard exemption. It’s as if we’re playing poker and we’ve been dealt a new “wild” card that will enable us to win.
The wildcard exemption should permit most Long Island debtors to keep all of their assets in a typical Chapter 7 case. Previously, assets such as cars, bank accounts, personal injury causes of action, and tax refunds were at times difficult to fully protect for some clients.
First, a little about choosing the exemption scheme. A debtor can choose either the federal exemptions or the state exemptions, whichever is more favorable, but a debtor cannot use a combination of the two. If a married couple files a joint case, both spouses must use the same exemption scheme.
Next, here’s a very general outline of some of the most common federal exemptions that each debtor can claim:
Homestead Exemption $21,625
Motor Vehicle $3,450
Tools of Trade $2,175
Jewelry $1,450
Cash $1,150
Personal Injury $21,625
Household Goods $11,525
Motor Vehicle $3,450
Tools of Trade $2,175
Jewelry $1,450
Cash $1,150
Personal Injury $21,625
Household Goods $11,525
If you’ve read any older material referring to these federal exemptions, you’ll notice that all of the above amounts are different. They changed in April 2010, and they will change again in a few years. We New Yorkers are not used to that, as the federal exemptions have barely changed in two decades.
The Federal Wildcard Exemption
The Federal Wildcard Exemption
The federal exemptions are set forth in Bankruptcy Code Section 522(d) which states, in relevant part:
The following property may be exempted […]
(1) The debtor’s aggregate interest, not to exceed $21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. [….]
(5) The debtor’s aggregate interest in any property, not to exceed in value $1,150 plus up to $10,825 of any unused amount of the exemption provided under paragraph (1) of this subsection.
Sub-section 522(5) is the wildcard exemption. This sub-section works together with section 522(1) to enable a debtor who does not use the federal homestead exemption to exempt $10,825 in “any property”.
Stacking and Flexibility with the WIldcard Exemption
Thus, one great thing about the wildcard exemption is its flexibility which enables a debtor to split the wildcard exemption amount over multiple items and stack it on top of other exemptions as needed to protect any exposed equity.
This, coupled with the other asset-specific exemptions found elsewhere in section 522, usually allows a debtor to exempt all of his or her property in a Chapter 7 bankruptcy.
Learning About the New, New York Bankruptcy Exemption Law
So how does one learn more about the new federal exemptions? Here’s my plan of action. Since I am not used to them, I will need to commit them to memory and determine how to employ them in a strategic manner.
Therefore, I plan to read and re-read section 522 a dozen times until they sink in. This section is lengthy and will require some dedicated concentration.
I will review various bankruptcy treatises like my favorite, Consumer Bankruptcy Law and Practice, published by National Consumer Law Center. I will also begin reading recent cases from other parts of the country that interpret various aspects of the federal exemptions – cases that I conveniently ignored for years because they did not mean anything to me; but now they are ever so important.
I also like Consumer Bankruptcy News, published by LRP Publications – a nice bi-weekly review of new bankruptcy cases combined with news and some articles about bankruptcy practice.
I will be looking forward to the next CLE about the subject. Suffolk Academy of Law Dean and Chapter 7 Trustee Richard L. Stern will be moderating a Lunch ‘n Learn Seminar about the new federal exemptions at the Suffolk County Bar Association on Wednesday, March 9, 2011.
Finally, I will be eagerly anticipating the first few decisions from our very own bankruptcy judges in the Eastern District of New York, as debtors’ counsel and trustees really try to see how these new laws work.
About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the FEBRUARY 2011 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800 (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
By Craig D. Robins
Biggest Bankruptcy News in Years Is a Boon to Debtors
For New York consumers considering bankruptcy, the biggest bankruptcy news in five years dropped like a bombshell on December 23, 2010 when then-Governor Paterson unexpectedly signed legislation greatly increasing the state law exemptions.
Exemptions are those statutes that permit consumer debtors in bankruptcy to keep and protect assets. The new law will become effective on January 22, 2011.
This will certainly cause an increase in the number of consumer bankruptcy cases we will see next year as more financially burdened consumers will be able to eliminate their debts while keeping and protecting all of their assets.
Homestead Exemption Increases to $150,000 per Person for Those on Long Island
The old homestead exemption statute, which went into effect in 2005, increased the amount of equity each debtor could protect in their home from $10,000 to $50,000. For Long Islanders and those in the five boroughs, the new homestead exemption for 2011 triples that amount to an incredible $150,000. Since a husband and wife can pool their homestead exemption, that means that a married couple will be able to protect a whopping $300,000 worth of equity in their home.
Homestead Exemption Increases to $150,000 per Person for Those on Long Island
The old homestead exemption statute, which went into effect in 2005, increased the amount of equity each debtor could protect in their home from $10,000 to $50,000. For Long Islanders and those in the five boroughs, the new homestead exemption for 2011 triples that amount to an incredible $150,000. Since a husband and wife can pool their homestead exemption, that means that a married couple will be able to protect a whopping $300,000 worth of equity in their home.
This will enable almost any typical Long Island middle class family to file a Chapter 7 bankruptcy and eliminate their credit card debts while fully protecting their home. Of course, consumers must still pass the means test; the new exemption law has no impact on that.
The new law also means that many individuals who previously filed for Chapter 13 relief because they had too much equity in their homes, and are currently part-way through their Chapter 13 plan, will likely be able to convert their cases to Chapter 7 and not have to make any further payments. In order to do so, they would also need to demonstrate that their new budget has no disposable income, despite previously filing a budget that had enough funds left over to enable them to make their monthly Chapter 13 plan payment.
Incidentally, the amount of the new homestead exemption will be based on what county the debtor’s home is in. For most downstate counties the homestead exemption will be $150,000 per person; for upstate counties, it will be $75,000 per person.
Previously, most states had more generous homestead exemptions than New York; now it will have one of the best.
Amounts for Almost All Other Exemptions Categories Are Being Increased and New Categories Are Being Added
The new bill also increases the exemptions for a great deal of other assets like cars, and adds some new categories like home computers and vehicles for the handicapped.
Amounts for Almost All Other Exemptions Categories Are Being Increased and New Categories Are Being Added
The new bill also increases the exemptions for a great deal of other assets like cars, and adds some new categories like home computers and vehicles for the handicapped.
The exemption for cars is being increased from $2,400 to $4,000. Vehicles equipped for the handicapped will be exempt for up to $10,000.
A new exemption enables homeowners who claim the homestead exemption to also exempt up to $1,000 in cash. Previously, homeowners could not exempt cash if they claimed the homestead exemption. This will enable homeowners to protect a larger amount of their tax refund which is considered cash for exemption purposes.
Another new category permits consumers to protect up to $1,000 worth of jewelry and art. The tools of trade exemption, which permit debtors to protect the tools and implements of their profession, is being increased from $600 to a more respectable $3,000.
There are also increased protections for cell phones, health aids, food, heating equipment, religious books, etc. However, I have never seen a trustee previously raise an issue with any of these types of assets, nor do trustees seem to have any interest in a used home computer. Nevertheless, it’s nice to see increased exemption amounts.
New Law Will Permit Debtors To Chose Between the New State Exemptions and the Federal Exemptions
Perhaps the biggest change to the law, other than the increase to the homestead exemption, is that debtors may now chose either the federal exemptions or the New York State law exemptions.
Perhaps the biggest change to the law, other than the increase to the homestead exemption, is that debtors may now chose either the federal exemptions or the New York State law exemptions.
When the current version of the Bankruptcy Code was created several decades ago, it included certain federal exemptions as well as a provision that permitted each state to either adopt them or “opt out,” in which case the state can chose their own exemption scheme. From day one, the New York legislature chose to opt out and use its own exemption statutes which have primarily been contained in the C.P.L.R. and Debtor and Creditor Law.
Some Debtors Will Be Wild over the New Wildcard Federal Exemption
The federal exemptions should provide some tremendous protections for consumers who do not need the generous New York state homestead exemption. This is because the federal exemptions contain a miscellaneous “wildcard” exemption that permits consumers to protect $12,000 worth of miscellaneous assets including cash and tax refunds. Since the wildcard exemption provides a great deal of flexibility, consumers will greatly benefit from now being able to use this provision.
In addition, the federal exemptions have a $20,200 personal injury exemption, compared to New York’s much-smaller $7,500 P.I. exemption.
New York attorneys, trustees and bankruptcy judges, all of whom have little or no idea what the federal exemptions are about, as they have never had to use them (or haven’t used them since the early 1980’s when the federal exemptions were last available in New York), will have an interesting and very exciting time during the next several years as they race to come up to date learning about them and applying them. We will also begin to see some New York bankruptcy court decisions for the first time in many decades interpreting the use of the federal exemptions in this state.
Proposed Legislation to Expand New York’s Exemptions Has Been Periodically Submitted in Albany for Years
For years, legislation was proposed each and every year in Albany that sought to increase exemption amounts. This legislation never received any publicity because it was periodically struck down and nobody ever expected it to pass.
In years past, when I would discuss this with some of my colleagues, they were surprised to hear that there was pending legislation considering that it wasn’t publicized at all.
Despite reaching various stages in Albany each year for the past decade, such legislation has never found its way into law except once, when the homestead exemption was increased in September 2005.
The Governor’s Signing of the Bankruptcy Legislation Today Was Totally Unexpected
In July of this year we seemed to get closer than ever before to seeing a change in New York’s woefully inadequate exemption laws.
The Governor’s Signing of the Bankruptcy Legislation Today Was Totally Unexpected
In July of this year we seemed to get closer than ever before to seeing a change in New York’s woefully inadequate exemption laws.
At that time, both houses of the New York State Legislature passed legislation to increase bankruptcy exemptions in New York State. However, the banking industry, which has an extremely large presence in New York, vigorously lobbied Governor Paterson to veto the bill.
Very few people thought there was any chance that Governor Paterson would sign the legislation into law. For that reason, no one was holding their breath about its passage because nobody expected it to happen.
The Bankers carry a lot of power, even with Democrats. They argued that many consumers owe taxes to New York State, and with the bill’s added protections for debtors, both in and outside of bankruptcy, New York State’s tax collections would suffer.
New York City officials also opposed the legislation, arguing that it would impair the City’s ability to tow and auction cars for outstanding parking violations.
For a period of time, the bankruptcy legislation, which was signed by both houses, just sat on the Governor’s desk, and we all assumed it would die there.
Yet, Gov. Paterson, who is leaving office in just one week, signed the bill during his last week in office — with no advance notice and no fanfare of any kind, catching me, as well as all other bankruptcy practitioners, by surprise. And a very nice surprise at that! The only hint came a day before when his staff circulated a memo to asking for input on the pending bill.
Perhaps the Governor, who apparently does not see public service in his future, was upset at the damage wrought by the financial sector which drove the economy into a recession, and used this opportunity to give something back to his constituents.
Governor Paterson Issued Press Release Discussing Why He Signed New Exemption Law
The Governor announced his signing of the bill by sending out a press release the day he signed it. He stated that the bill “would provide a much-needed update to the exemptions law in New York as many provisions of State’s exemptions law are antiquated or have not been amended since the 1980’s.
Governor Paterson Issued Press Release Discussing Why He Signed New Exemption Law
The Governor announced his signing of the bill by sending out a press release the day he signed it. He stated that the bill “would provide a much-needed update to the exemptions law in New York as many provisions of State’s exemptions law are antiquated or have not been amended since the 1980’s.
The purpose of such exemptions is to permit debtors in bankruptcy to retain a modest amount of personal property and equity in their homes so that they can continue to maintain their lives, and to protect them from becoming homeless, unemployed, or otherwise dependent on the State.”
The New and Increased Exemptions Will Help Future Bankruptcy Debtors in Many Ways
Not only will more consumers be able to file for Chapter 7 bankruptcy, but many of those who seek Chapter 13 protection instead will end up paying substantially less through their monthly Chapter 13 plan.
The New and Increased Exemptions Will Help Future Bankruptcy Debtors in Many Ways
Not only will more consumers be able to file for Chapter 7 bankruptcy, but many of those who seek Chapter 13 protection instead will end up paying substantially less through their monthly Chapter 13 plan.
Also, many existing Chapter 13 debtors may be able to convert there cases to one under Chapter 7 and eliminate all further monthly payments.
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About the Author. Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the JANUARY 2011 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
Written by Craig D. Robins, Esq.
I just posted breaking news about the Governor Paterson’s unexpected signing of the bill to change the New York Bankruptcy Exemption Statutes. See: New York Bankruptcy Exemptions Suddenly Increased – This Is the Biggest Bankruptcy News in Years!
This Christmas and holiday gift from the outgoing governor is great news for consumers and it will certainly by the major topic of bankruptcy conversation this coming year. The new law, which will help consumers protect more assets than ever before, will certainly lead to many more consumer bankruptcy filings for years to come.
Over Christmas break I prepared a chart outlining the most important changes to the New York exemption statutes that we commonly use for our bankruptcy clients.
There are other changes as well that I didn’t outline, as they never come up. For example, there are also increased protections for cell phones, health aids, food, heating equipment, religious books, etc. However, I have never seen a trustee raise any issue of any kind with such assets.
The Federal Exemptions Come to New York
Perhaps the other major aspect of the new exemption law is that it permits New York residents to choose between the New York exemption statutes and the Federal Exemption statutes which are set forth in Section 522(d) of the Bankruptcy Code.
The federal exemptions have never been available in this state before.
The federal exemptions have some liberal provisions not otherwise available in New York statutes. They provide many additional protections that would be most useful to those consumers who do not need to take advantage of their homestead exemption.
The federal exemptions contain a “wild card” exemption that enables consumers to protect a generous amount of cash.
I will discuss the federal exemptions in future article that I will post later this week.
Chart Containing the Most Important Changes to the New, 2011 Bankruptcy Exemption Statutes for New York
| Existing New York State Bankruptcy Exemptions
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NEW New York State Bankruptcy Exemptions |
Homestead Exemption (note: this can be doubled for married couples filing jointly, who own the real estate together)
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Homestead Exemption (note: this can be doubled for married couples filing jointly, who own the real estate together)
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Motor Vehicle
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Motor Vehicle
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Motor Vehicle equipped for use by a disabled person (new category)
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Cash Exemption if Homestead Exemption is taken
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Cash Exemption if Homestead Exemption is taken
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Jewelry and Art
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Jewelry and Art
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Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)
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Tools of Trade (these are the working tools and implements that are necessary to carry on one’s business)
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Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing
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Aggregate Individual Bankruptcy Exemption for Cash, Household Goods and Clothing
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Link to the Actual Bankruptcy Exemption Bill
Here is a link to the actual bankruptcy exemption bill.
New York Bankruptcy Exemptions Suddenly Increased – This Is the Biggest Bankruptcy News in Years!
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Written by Craig D. Robins, Esq.For New Yorkers considering bankruptcy, the biggest bankruptcy news in five years dropped like a bombshell this afternoon when Governor Patterson unexpectedly signed legislation greatly increasing exemptions for consumers.
Exemptions are those statutes that permit consumer debtors in bankruptcy to keep and protect assets.
New York Residents Seeking Bankruptcy Relief in 2011 Will Be Able to Protect More Assets than Ever Before
This will certainly cause an explosion in the number of consumer bankruptcy cases we will see next year as more financially burdened consumers will be able to eliminate their debts while keeping and protecting all of their assets.
Homestead Exemption Increasing to $150,000 per Person for those on Long Island
Right now each homeowner can protect only $50,000 worth of equity in a house. However, for those on Long Island who live in Nassau and Suffolk Counties, that amount will triple to $150,000.
Since a husband and wife can pool their exemption, that means that a couple will be able to protect a whopping $300,000 worth of equity in their home.
This will enable almost any typical Long Island middle class family to file bankruptcy to eliminate their credit card debts while protecting their home.
In my Long Island bankruptcy practice, I am regularly meeting with homeowners who are forced to file for Chapter 13 bankruptcy instead of Chapter 7 because they have too much equity in their homes. Now, almost everyone will be able to seek Chapter 7 bankruptcy relief and keep and protect their homes.
Incidentally, the amount of the new homestead exemption will be based on what county the debtor’s home is in. For most upstate counties, the homestead exemption will only be $75,000 per person.
More than half of the states previously had more generous homestead exemptions than New York; now it will have one of the best.
Amounts for Almost All Other Exemptions Categories Are Being Increased and New Categories Are Being Added
The new bill also increases the exemptions for a great deal of other assets like cars, and adds some new categories like home computers and vehicles for the handicapped.
Many of the exemption amounts that are being increased had not changed in decades.
I am in the process of reviewing each of the various changes to the exemption laws, and I will discuss and outline them in a post tomorrow.
Proposed Legislation to Expand New York’s Exemptions Has Been Periodically Submitted in Albany for Years
For years, legislation was proposed each and every year in Albany that sought to increase exemption amounts. This legislation never received any publicity because it was periodically struck down and nobody ever expected it to pass.
In years past, when I would discuss this with some of my colleagues, they were surprised to hear that there was pending legislation considering that it wasn’t publicized at all.
Despite reaching various stages in Albany each year for the past decade, such legislation has never found its way into law except once, when the homestead exemption was increased in September 2005. That year it was increased five-fold from $10,000 per person to $50,000 per person. Here’s the article that I wrote about that: Surprise Law Enactment – Homestead Exemption Increased .
The Governor’s Signing of the Bankruptcy Legislation Today Was Totally Unexpected
In July of this year we seemed to get closer than ever before to seeing a change in New York’s woefully inadequate exemption laws.
At that time, both houses of the New York State Legislature passed legislation to increase bankruptcy exemptions in New York State. However, the banking industry, which has an extremely large presence in New York, vigorously lobbied Governor Patterson to veto the bill.
Very few people thought there was any chance that Governor Patterson would sign the legislation into law. For that reason, no one was holding their breath about its passage because nobody expected it to happen.
The Bankers carry a lot of power, even with Democrats. They argued that many consumers owe taxes to New York State, and with the bill’s added protections for debtors, both in and outside of bankruptcy, New York State’s tax collections would suffer.
New York City officials also opposed the legislation, arguing that it would impair the City’s ability to tow and auction cars for outstanding parking violations.
For months, the bankruptcy legislation, which was signed by both houses, just sat on the Governor’s desk, and we all assumed it would die there.
Yet, Gov. Patterson, who is leaving office in just one week, signed the bill today – his very last — with no advance notice and no fanfare of any kind, catching me, as well as all other bankruptcy practitioners, by surprise. And a very nice surprise at that!
Perhaps the Governor, who apparently does not see public service in his future, was upset at the damage wrought by the financial sector which drove the economy into a recession, and used this opportunity to give something back to his constituents.
Governor Patterson Issues Press Release Discussing Why He Signed New Exemption Law
Along with the new law came a press release. In it the Governor said:
“During this time of economic crisis, it is our responsibility as public servants to protect those who are struggling the most.
“A reconsideration of the current exemptions, which in some cases have not been changed in decades, is particularly warranted when an increasing number of individuals find themselves in dire financial condition. Though this is not a perfect bill, the benefits far outweigh its concerns.”
The press release also stated: This bill would provide a much-needed update to the exemptions law in New York as many provisions of State’s exemptions law are antiquated or have not been amended since the 1980’s. The purpose of such exemptions is to permit debtors in bankruptcy to retain a modest amount of personal property and equity in their homes so that they can continue to maintain their lives, and to protect them from becoming homeless, unemployed, or otherwise dependent on the State.
The New and Increased Exemptions Will Help Future Bankruptcy Debtors in Many Ways
Not only will more consumers be able to file for Chapter 7 bankruptcy, but many of those who seek Chapter 13 protection instead will end up paying substantially less through their monthly Chapter 13 plan.
Also, many existing Chapter 13 debtors may be able to convert there cases to one under Chapter 7 and eliminate all further monthly payments.
The bankruptcy attorneys in my office and I will be quite busy reviewing all of our cases over the next few weeks to ascertain how to best take advantage of the new exemptions amounts.
To see a number of post that I’ve written about bankruptcy exemptions, see the articles under this category: Bankruptcy Exemptions.
Written by Craig D. Robins, Esq.Some people erroneously think that they are not allowed to own any assets after filing for bankruptcy. This is not true.
The purpose behind consumer bankruptcy is to give an honest debtor the opportunity for a fresh new financial start.
The bankruptcy laws recognize that in order to get this start, you must be able to keep a reasonable amount of your possessions, such as a roof over your head, clothes on your back, and a reasonable amount of other possessions — this is all so that you can move forward with your life without becoming a ward of the state.
Various Assets are Protected by Various Bankruptcy Exemption Statutes
There are a number of laws called exemption statutes that indicate what possessions you can keep and protect. Click here to see Bankruptcy Exemptions in New York .
Wondering about keeping your clothes? You shouldn’t — Can They Take the Shirt Off My Back In a Bankruptcy Proceeding?
The exemption statute that protects your home is called the homestead exemption. Several years ago, New York increased the amount of its homestead exemption by five times — Surprise Law Enactment – Homestead Exemption Increased .
Almost all retirement accounts are protected in bankruptcy. That’s why If You’re Considering Bankruptcy, Avoid the Temptation of Borrowing From Your Retirement Account .
To learn more about pensions, see Are Pensions Protected in New York Bankruptcy Cases?
I.R.A. accounts are also protected when filing for bankruptcy. How Much Can You Protect In an Individual Retirement Account (IRA) While Filing Bankruptcy in New York?
Tax refunds are often protected in bankruptcy proceedings. To find out more if yours is, read The Issues to Consider in Determining If a Tax Refund is Protected in Bankruptcy .
Written by Craig D. Robins, Esq.
This post is the fourth in a series of articles that I’ve writtten this week addressing every aspect you will need to know about filing bankruptcy, protecting tax refunds, and related issues. Links to all posts in this series are at the bottom of the page.
What Should You Do If You Expect a Large Tax Refund, But Haven’t Filed the Bankruptcy Petition Yet?
TIP: Here’s where pre-bankruptcy planning becomes very important. If you expect a large refund, you may want to delay the filing of your bankruptcy petition until you receive the refund and spend it down in an appropriate manner.
Using a large tax refund to pay your rent or mortgage, buy food, make a car payment, or even pay your bankruptcy attorney, are all types of payments that are consistent with filing for bankruptcy in good faith. Sometimes the refund can also be used to buy necessary clothing or furniture, fix your house, repair your car, or get necessary dental work done.
However, you cannot pay existing debts to friends or relatives, give the money away, gamble it away, or buy luxury goods. In general, using it to pay any reasonable and necessary expenses is O.K.
Since pre-bankruptcy planning can be tricky in order to do it in a way that complies with the bankruptcy law, it is always best to seek the advice of a competent bankruptcy attorney before doing so.
Exempting the Tax Refund in the Bankruptcy Petition
If you need to file your bankruptcy petition before you recieve the refund, you must list it in the petition.
To protect your tax refund, you must exempt it by including it as an asset in the Schedule B, which is the Schedule of Personal Property, by stating the anticipated amounts of both the Federal and State refunds, and by listing the exemption and the correct exemption statute (New York C.P.L.R. section 5206) in Schedule C to the petition, which is the Schedule of Exemptions.
If you have to file your bankruptcy petition before preparing your tax return, then you will not know the amount of your refund (which is fairly common because most people don’t do prepare their tax returns until April). In such situations, you should nevertheless list it as “possible income tax refund for the 2009 tax year. . . . Amount $ – unknown -“
You May Be Able to Keep a Non-Exempt Tax Refund If It Is Small
Generally, trustees will only administer non-exempt assets if it is reasonable to do so. If the tax return is relatively small, it will probably be administratively inconvenient for the trustee to be burdened with all of the work necessary to distribute a very small amount.
I previously wrote a post about the issues a Chapter 7 trustee considers in deciding whether to take a debtor’s money or assets to distribute to creditors: Sometimes Debtors Can Keep Non-Exempt Assets in Chapter 7 Bankruptcy Cases .
Quick Links to All Tax Week Blog Posts About Tax Refunds and Bankruptcy:
Informative Article About Eliminating Taxes in Bankruptcy:
Article About Tax Consequences and Bankruptcy:
Written by Craig D. Robins, Esq.If a trustee in a Chapter 7 case comes across a significant asset that is not exempt, the trustee will first solicit an offer from the debtor. If the debtor is interested in keeping the asset, then the debtor will negotiate to purchase the debtor’s interest.
What happens if the debtor is not interested or can’t afford to purchase the asset? Then the trustee will try to sell it.
In order to do so, the Chapter 7 trustee must give notice to all creditors and interested parties listed in the petition.
The trustee can then determine how the asset will be sold. It can be through a broker or an auctioneer. The trustee can also publish a notice indicating that the sale will be in his office, or that the item will be sold to the highest bid received by a certain date.
In order for the trustee to accept a bid, even if the only party making the offer is the debtor, the trustee must seek bankruptcy court approval. In some instances, the trustee will structure the sale so that it is subject to a higher or better offer.
Once the trustee sells the asset, then he has good amount of paperwork to do.
You may be interested in a related post I wrote: How Much Do Chapter 7 Bankruptcy Trustees Get Paid?
What are typical assets that a Chapter 7 trustee may sell? These can be cars, jewelry, collectibles, homes, and even baseball tickets.
However, a good experienced Chapter 7 bankruptcy attorney will properly guide the client to make sure that there are no unprotected assets. Also, Sometimes Debtors Can Keep Non-Exempt Assets in Chapter 7 Bankruptcy Cases .
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For those considering filing bankruptcy in New York, here is a list of the most common Bankruptcy Exemptions in New York .